IIJ Announces Nine Months Financial Results for the Fiscal Year Ending March 31, 2011

/ Source: GlobeNewswire

TOKYO, Feb. 10, 2011 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its consolidated financial results for the nine months ended December 31, 2010 (from April 1 to December 31, 2010).1

Highlights of Financial Results for the Nine Months Ended Dec 2010

  • Revenues were JPY56,797 million ($695.4 million), up 17.6% YoY. Outsourcing services steadily grew and there were 4 months contribution from IIJ Global Solutions Inc. ("IIJ-GS").
  • Operating income was JPY2,430 million ($29.8 million), up 21.1% YoY. Gross margin of network services increased and operating loss related to ATM operation business decreased.
  • Net income attributable to IIJ was JPY1,997 million ($24.5 million), up 76.2% YoY.
  • FY2010 year-end dividend forecast was revised upward from JPY1,250 to JPY1,500 per share. FY2010 full-year dividend forecast will be JPY2,750, up JPY500 YoY.
  • Full-year financial targets remain unchanged.

1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All financial figures are unaudited and consolidated. The translation of Japanese yen into U.S. dollars is solely for the convenience of readers outside of Japan. The rate used for the translation was JPY81.67 per US$1.00, which was the noon buying rate on December 31, 2010.

2 IIJ's 1 common stock is equivalent to 400 ADSs

Overview of FY2010 Nine Months Financial Results and Business Outlook

"With the cloud computing service performing as a door opener to new clients, despite the continued weakness in Japanese economy and corporate spending on network systems, our outsourcing services continued to grow. 4 months additional revenue from IIJ-GS which we acquired from AT&T Japan on September 1, 2010 also contributed to revenue and income growth," said Koichi Suzuki, President and CEO of IIJ.

"Our new cloud computing service is growing at a much faster speed than we expected. It is one of our fastest growing service. As of December 2010, we are servicing over 300 cloud computing projects to both clients we had prior contact with and to those who are new to us and there are over 1,000 prospected cloud computing projects," continued Suzuki.

"In addition, our outsourcing services such as Web-gateway service, SMX service, contents delivery network service and data center related services have also continued its steady growth. We believe it's our long experience in providing outsourcing service and our persistent effort to introduce new services which prevents any internet related security crisis that makes corporate customers choose our services. During the 3rd quarter of this fiscal year, we've launched several new services: IIJ Mobile Biz Plus that provides access restriction features, IIJ Smart Mobile Manager that enables remote management of iPad and other smart phone devices and add on firewall feature for SMF service. All these services give solutions to those critical problems which many corporate customers are facing."

"There's also been progress with IIJ-GS. IIJ and IIJ-GS has strengthened its sales force that cross-sells both IIJ's network outsourcing services and IIJ-GS's WAN services to both corporate customers," said Suzuki.

"For our mid-term business developments, we will introduce new services in addition to further expanding our service facilities for cloud computing such as Japan's first container-unit commercial data center. We will also promote the use of IPv6 address. As many of you may know, the Internet will run out of IPv4 addresses to allocate and internet users, both corporate and individual, eventually will have to start using IPv6 addresses. Our backbones, servers and services are already IPv6 ready and we have solutions, engineering skills and experience to support IPv6. As for IIJ-GS, it is currently preparing to take its business abroad, especially in Asia, by providing global-WAN services mainly to Japanese companies overseas."

We have omitted segment analysis because most of our revenues are dominated by Network services and systems integration business.

FY2010 Nine Months Results of Operation

Revenues

Revenues were JPY56,797 million, up 17.6% YoY. Additional revenue of 4 months related to IIJ-GS was JPY8,652 million.

Network Services revenue were JPY36,110 million, up 30.8% YoY.

Revenues for Internet connectivity services for corporate use were JPY10,433 million, up 0.6% YoY as IIJ mobile service and broadband connectivity services increased. Contracts of over 1Gbps IP service as of end of December 2010 was 127 contracts, up 6 contracts YoY.

Revenues for Internet connectivity services for home use were JPY4,974 million, down 3.1% YoY.

WAN Services revenue were JPY9,702 million, up 408.8% YoY. There were additional revenues related to IIJ-GS of 4 months.

Outsourcing services revenue were JPY11,001 million, up 7.9% YoY. Services such as Web Security, anti-spam email related services, contents delivery services, data center related services and cloud computing related services increased, respectively. Our cloud computing service "IIJ GIO" is growing and its monthly revenue, including revenue which is recognized in systems operation and maintenance, as of end of December 2010 has reached over JPY90 million.

 

SI revenues were JPY19,784 million, down 1.9% YoY. Systems construction revenues, a one-time revenue, were JPY6,920 million, up 12.8% YoY as there were mid- to small sized network construction projects. Systems operation and maintenance revenues, a recurring revenue, was JPY12,864 million, down 8.3% YoY affected by the scale-down from a certain large client in 1Q10.

The order backlog for systems construction and equipment sales was JPY5,928 million, up 11.9% YoY. The order backlog for systems operation and maintenance was JPY10,883 million, up 12.3% YoY.

Equipment sales revenues were JPY550 million, up 25.3% YoY.

ATM Operation Business revenues were JPY353 million. As of February 10, 2011, 200 ATMs are placed.

Cost and expense

Cost of revenues was JPY45,257 million, up 17.0% YoY. Cost of revenues related to IIJ-GS of 4 months were JPY6,976 million.

Cost of Network Services revenue was JPY29,205 million, up 27.7% YoY mainly due to the increase in circuit related and outsourcing related costs related to IIJ-GS of 4 months. Gross margin for network services was JPY6,905 million, up 46.2% YoY and gross margin ratio was 19.1%.

Cost of SI revenues was JPY14,876 million, up 0.8% YoY. While purchasing cost decreased, network operation related and personnel related costs increased. Gross margin for SI was JPY4,908 million, down 9.3% YoY and gross margin ratio was 24.8%.

Cost of Equipment Sales revenues was JPY473 million, up 24.6% YoY. Gross margin was JPY77 million and gross margin ratio was 13.9%.

Cost of ATM Operation Business revenues was JPY703 million. Outsourcing costs were reduced. We are additionally placing new ATMs and full FY2010 operating loss related to ATM operation business is expected to be around JPY0.6 billion.

SG&A and R&D Expenses

SG&A and R&D expenses were JPY9,110 million, up 19.7% YoY. SG&A expenses related to IIJ-GS of 4 months was JPY1,001 million.

Sales and marketing expenses were JPY4,756 million, up 21.1% YoY mainly due to the additional expenses related to IIJ-GS, personnel related expenses and depreciation and amortization increased. Amortization of customer relationship related to IIJ-GS was JPY129 million.

General and administrative expenses were JPY4,095 million, up 18.9% YoY mainly due to the additional expenses related to IIJ-GS, personnel related expenses and depreciation and amortization increased. In 3Q10, there were restoration expenses, to return the rented office to its original state, of JPY48 million in relation to next fiscal year's new office plan.

Research and development expenses were JPY259 million, up 7.6% YoY.

Operating income

Operating income was JPY2,430 million, up 21.1% YoY as gross margin for network services increased and operation loss related to ATM operation business decreased.

Other income (expenses)

Other income (expenses) was net other expense of JPY255 million (expense of JPY224 million for the nine months ended December 2009) as there were interest expenses and losses on write-down of other investments.

Income before income tax expenses

Income before income tax expenses was JPY2,175 million, up 22.0% YoY (JPY1,783 million for the nine months ended December 2009).

Net Income

Income tax expense was JPY459 million (JPY1,042 million for the nine months ended December 2009). Deferred income tax expenses was JPY242 million (JPY790 million for the nine months ended December 2009).

Equity in net income of equity method investees was JPY129 million (JPY127 million for the nine months ended December 2009).

Net income was JPY1,845 million, up 112.5% YoY (JPY868 million for the nine months ended December 2009).

Net income attributable to IIJ

Net loss attributable to noncontrolling interests was JPY152 million (JPY265 million for the nine months ended December 2009), related to Trust Networks Inc. and GDX Japan Inc.

Net income attributable to IIJ was JPY1,997 million, up 76.2% YoY (JPY1,133 million for the nine months ended December 2009).

FY2010 Nine Months Financial Condition

Balance Sheets

As of December 31, 2010, the balance of total assets was JPY67,145 million, up JPY15,048 million from the balance as of March 31, 2010 as a result of the acquisition of IIJ-GS.

For current assets, as compared to each of the respective balances as of March 31, 2010, accounts receivable increased by JPY4,735 million, prepaid expenses increased by JPY879 million and deferred tax assets decreased by JPY601 million. As of noncurrent assets, other intangible assets (net) increased by JPY4,615 million, property and equipments increased by JPY1,564 million and goodwill increased by JPY494 million. As for current liabilities, as compared to each of the respective balances as of March 31, 2010, short-term borrowings increased by JPY9,000 million mainly for the acquisition of IIJ-GS and accounts payable increased by JPY3,499 million. Noncurrent capital lease obligations decreased by JPY576 million to JPY3,081 million.

As of December 31, 2010, the balance of other investments was JPY2,934 million, an increase of JPY353 million from the balance as of March 31, 2010. The breakdown of other investments were JPY1,843 million in nonmarketable equity securities, JPY892 million in available-for-sale securities and JPY199 million in other.

As of December 31, 2010, the balance of non-amortized intangible assets (excluding telephone rights) such as goodwill was JPY4,306 million and the balance of amortized intangible assets was JPY7,228 million. The breakdown of non-amortized intangible assets were JPY4,114 million in goodwill (JPY594 million related to IIJ-GS) and JPY192 in trademark. The breakdown of amortized intangible assets were JPY7,191 million in customer relationships (JPY4,766 million related to IIJ-GS) and JPY37 million in licenses.

Total IIJ shareholders' equity as of December 31, 2010 was JPY28,696 million, an increase of JPY1,376 million from the balance as of March 31, 2010. IIJ Shareholders' equity ratio (IIJ shareholders' equity/total assets) as of December 31, 2010 was 42.7%.

The measurement of the assets acquired and liabilities assumed related to the acquisition of IIJ-GS is to be completed within a year from the acquisition date. The measurement has not yet been completed as of the end of December 31, 2010 and therefore, the preliminary estimates are subject to revisions.

Cash Flows

Cash and cash equivalents as of December 31, 2010 were JPY10,800 million compared to JPY8,466 million as of December 31, 2009.

Net cash provided by operating activities for the nine months ended December 31, 2010 was JPY8,387 million compared to net cash provided by operating activities of JPY6,261 million for the nine months ended December 31, 2009. While operating income increased YoY due to the increase in gross margin for network services, there were changes in operating assets and liabilities during the nine months ended December 31, 2010, mainly resulting from the Increase in inventories, prepaid expenses and other current and noncurrent assets of JPY722 million, increase in accounts payable of JPY3,950 million, decrease in accrued expenses and other current and noncurrent liabilities of JPY2,031 million.

Net cash used in investing activities for the nine months ended December 31, 2010 was JPY12,629 million compared to net cash used in investing activities of JPY2,798 million for the nine months ended December 31, 2009, mainly due to the acquisition of IIJ-GS for JPY9,170 million and the purchase of property and equipments of JPY3,037 million.

Net cash provided by financing activities for the nine months ended December 31, 2010 was JPY6,321 million compared to net cash used in financing activities of JPY5,163 million for the nine months ended December 31, 2009, mainly due to the net increase in short-term borrowings of JPY9,000 million, principal payments under capital leases of JPY2,210 million and payments of JPY507 million for FY2009 year-end and FY2010 interim dividends.

FY2010 Financial Targets (announced on June 1, 2010)

Generally speaking, our full year target largely depends on the outcome of the 4th quarter revenue and income results which becomes the largest due to seasonal factors. Taking into account our nine months ended December 31, 2010 results, we remain our full FY2010 target unchanged.

Our targets for the fiscal year ending March 31, 2011 are as follows:

FY2010 Year-end Dividend Forecast

We revised upward our FY2010 year-end dividend forecast from JPY1,250 to JPY1,500 per share. FY2010 full-year dividend forecast will be JPY2,750, up JPY500 YoY.

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

 

 

 

Other Information

From the second quarter of FY2010, to reflect the acquisition of IIJ Global on September 1, 2010, "WAN services", which were components of "Outsourcing services revenues" were separately disclosed to clarify the contents of WAN services revenues. In addition, "Connectivity Services" was renamed to "Internet Connectivity Services".

"During the fiscal years ended March 31, 2007 and 2008, IIJ acquired additional shares of its subsidiary, IIJ Technology Inc. and made it IIJ's 100% owned consolidated subsidiary. In the course of these acquisitions, IIJ recognized indefinite-lived customer relationship intangible asset of JPY2,669,152 thousand in the aggregated. Subsequent to the issuance of its March 31, 2010 financial statements, IIJ's management determined that the deferred tax liabilities associated with the intangible asset should have been recorded with corresponding increase in goodwill at the time of the acquisitions. The amounts for goodwill, deferred tax liabilities (noncurrent) and total assets as of March 31, 2010 as previously reported were JPY2,639,319 thousand, JPY212,773 thousand and JPY51,115,450 thousand, respectively. The amounts for goodwill, deferred tax liabilities (noncurrent) and total assets as of March 31, 2010 as corrected are JPY3,620,342 thousand, JPY1,193,796 thousand and JPY52,096,473 thousand, respectively. The effect on income statement is immaterial.

Presentation

Presentation Materials will be posted on our web site ( http://www.iij.ad.jp/en/IR/ ) on February 10, 2011.

About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group of companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality systems integration and security services, Internet access, hosting/housing, and content design. Moreover, IIJ has built one of the largest Internet backbone networks in Japan, and between Japan and the United States. IIJ listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

The Internet Initiative Japan Inc. logo is available at

For inquiries, contact:

YUKO KAZAMA

IIJ Investor Relations Office

Tel: +81-3-5259-6500 E-mail: ir@iij.ad.jp URL: http://www.iij.ad.jp/en/IR

Statements made in this press release regarding IIJ's or management's intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ's and managements' current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding FY2008 revenues and operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ's ability to maintain and increase revenues from higher-margin services such as systems integration and outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; the impact of technological changes in its industry; IIJ's ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.

Tables to follow

3rd Quarter FY2010 Consolidated Financial Results (3 months)

The following tables are highlight data of 3rd Quarter FY2010 consolidated financial results (unaudited, from October 1, 2010 to December 31, 2010).

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the nine months of Fiscal Year Ending March 31, 2011(from April 1 to December 31, 2010) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Nine Months Ended December 31, 2010

[Under accounting principles generally accepted in the United States ("U.S. GAAP")]

                                       

                                      

CONTACT: Internet Initiative Japan Inc. YUKO KAZAMA Investor Relations Office E-mail: ir@iij.ad.jp Tel: +81-3-5259-6500 URL: http://www.iij.ad.jp/en/IR